The market party is over

Investors have been living it up, sending stocks soaring on hopes that the Federal Reserve will keep the easy money rally going. But without support from central banks, it might be time to turn out the lights. But who will clean up the mess?

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.

The Federal Reserve and European Central Bank are doing everything they can to keep the market rally going. But guess what? It's time to channel Doris Day and Judy Holliday. The party's over.

When you take a step back and look at all the challenges that continue to face stocks, it's astonishing that they have done as well as they have this year.

"Absent accommodative monetary policy, there is no reason to expect the market to be doing this well this year ... especially during the past few weeks," said John Norris, managing director with Oakworth Capital Bank in Birmingham, Ala.

Another earnings warning from shipping titan FedEx (FDX) this morning is not good news. It could be a sign that several companies will have disappointing profits in the third quarter due to the sluggish global economy. According to data from FactSet Research, earnings for companies in the S&P 500 are expected to decrease by 2.6% in the third quarter, from a year earlier.

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The good news (for now at least) is that analysts are expecting a profit rebound in the fourth quarter and beyond. Forecasts are for earnings to increase 10% in the fourth quarter from the same period a year ago, and that earnings will be 11% higher in 2013 than in 2012.

What's more, valuations (despite all the major indexes being at multi-year highs) are not completely unreasonable. The S&P 500 is currently trading at 13 times earnings estimates for the next 12 months.

Still, would it qualify as a monumental surprise if these profit projections wind up being too rosy? Analysts are often overly optimistic. And it just seems natural for stocks to take a breather right now when you consider all the macro risks.

There is growing tension in the Middle East -- and the possibility of significantly higher oil prices if violence escalates in the region. The recent dip in the dollar (a nasty side effect of QE3) could drive the price of oil and other commodities even higher, which would add to the strains already faced by many consumers and businesses. Europe's woes are not gone. China's economy is slowing.

And if all that weren't enough, investors should be concerned that partisan politics could trump common sense and plunge the U.S. economy off of the dreaded fiscal cliff of budget cuts and higher taxes. What's there to be excited about other than Ben Bernanke and Mario Draghi continuing to spike the proverbial punchbowl with more cheap dollars and euros?

"The excess liquidity sloshing around is giving people a sense of comfort. It's not the economy. It's not earnings," said Norris, who added that investors can only play that game for so long. "People may not be in this market for the long haul."

When you look at the markets right now, it's clear that some companies -- particularly cash-rich techs like Apple (AAPL) and Google (GOOG) -- probably have the fundamentals to support their stock prices.

But is the big rally in large banks like Bank of America (BAC), Citigroup (C), Morgan Stanley (MS), Goldman Sachs (GS) and JPMorgan Chase (JPM) really justified? Should shares of other highly economically sensitive companies like Caterpillar (CAT) and Ford (F) really be surging as much as they have in the past three months without any evidence that a global recovery may soon be upon us?

Politicians like to ask if we're better off now than we were four years ago. Investors should be asking themselves if they think the economy and market is really better off now than five years ago, right before the Great Recession began. It's mystifying that the broader market is back near 2007 peaks and tech stocks are at their highest levels in a dozen years.

Richard Ross, global technical strategist with Auerbach Grayson, a brokerage firm in New York, said he's nervous that investors are ignoring obvious warning bells. Ross notes that Monday's "flash crash" in oil is a worrisome sign. It's still not clear what caused the sell-off. But it clearly underscores just how fragile confidence is in the markets right now.

"The recent dip in oil could be a rude awakening. Any asset can be repriced quickly," Ross said.

That's especially true at at time when investors are so complacent. CNNMoney's own Fear & Greed Index has been firmly entrenched in Extreme Greed territory for the past few weeks. So it may not take much to spook investors. Too much money is heading in the same direction.

Ross said he's most surprised by the lack of any major concerns just yet regarding the elections and what may happen (or not happen) in Congress before the fiscal cliff deadline.

"People should definitely be concerned. It's almost too elementary to state that we are about to enter a period of heightened volatility from a political standpoint," he said. "Something doesn't make sense here."

And when logic takes a vacation, that's usually the time to be the most afraid.

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.